Future's 'all inside' the mall

Plano, TX — As J.C. Penney Inc. embarks on the third year of its five-year turnaround program, it has overhauled an antiquated buying structure, streamlined its logistics operation and struck out in a decisive fashion merchandising direction.

Now it has to begin making those accomplishments pay, even as it continues to fine-tune its operations over the coming 36 months.

"This is a crucial and pivotal year for us," acknowledged Vanessa Castagna, executive vp and ceo for JCPenney stores, catalog and Internet.

Speaking at the company's annual two-day analysts meeting here last week, she also noted that Penney is putting the pedal to the metal in the midst of a challenging environment.

"We face tough comparisons against last year. We have a mature marketing calendar. And we're now more and more on the radar screen as far as our competitors are concerned," she said.

JCPenney's mission: to be the dominant mall-based retailer of fashion at moderate prices.

The formula going forward:

Use the company's expanded product development and sourcing team to be first to market in the moderate channel with trend-right fashion merchandise.

Leverage Penney's three-channel retail structure through coordinated merchandising and marketing presentations across the store, Internet and catalogs with a focus on dominant businesses, key items and signature events.

Nonetheless, ambitions in terms of sales productivity remain conservative. Penney is planning a modest 2 percent growth in comps this year, and after evaluating April's results against soft results in January and February may readjust its forecast for the year, said Tom Clerkin, senior vp of finance for stores, catalog and Internet.

Catalog sales will decline another 5 percent to 10 percent this year, although Internet sales are expected to grow into a $1 billion business by 2005. Catalog and Internet is projected to show some growth next year, although it will be modest, he said.

Penney executives also acknowledged that the company must now put some effort into upgrading its store base, with only 5 percent of stores now set in its top-tier Box 1 format.

"We have very few stores in the A category and not nearly enough in the B category," said corporate chairman and ceo Allen Questrom. "Our challenge is to get our D stores up to C level, and our C stores up to B's."

This year, the company will renovate 30 stores in line with Box 1 following a pilot remodel last year of six units. Other stores will get "renewals" — improved lighting and/or flooring, as needed — said Chuck Foughty, senior vp, director store environment. "About half of the stores are already at acceptable levels," he said.

JCPenney will open three experimental off-the-mall stores in late October to test ways of improving productivity in its off-the-mall portfolio, Castagna said. The stores will open in "high-growth areas in marketing where we're already successful," she said.

However, the company remains committed to the mall environment, where the bulk of its 1,049 stores are anchored.

"I know a lot of you are anti-mall," Questrom said to the analysts. "But for our customer — the soft apparel, soft home consumer — it is the preferred place to shop for those goods."